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June 29, 2010

Post by Blog Staff

Yesterday, the Supreme Court decided Bilski v. Kappos, the most recent case at the Court probing the boundaries of patentable subject matter under § 101. Details of the underlying facts of the Bilski case may be found in our post on the Federal Circuit'sen banc decision here.

All nine Justices agreed that Bilski's method claims were not patentable. All nine Justices also agreed the "machine-or-transformation" test, held by the Federal Circuit to be the exclusive test for whether method claims are patentable subject matter, was a useful test, but not the exclusive test for such claims. In this way, the outcome was similar to KSR. There, the Federal Circuit had adopted an exclusive test for the question of obviousness. The Supreme Court then held the test was useful, but not the exclusive test for obviousness. In addition, all members of the Court at least expressed skepticism that the "useful, concrete, tangible result" test from State Street was a viable test, with the majority stating "nothing in today's opinion should be read as endorsing interpretations of § 101 that the Court of Appeals for the Federal Circuit has used in the past," citing State Street, and the Justice Stevens opinion concurring in the judgment stating it would be a "grave mistake" to assume that all claims meeting this test are patentable.

The disagreement among the Justices came when considering the question of whether business methods as a more general category fall within the scope of patentable subject matter defined in § 101. More detail of that disagreement after the jump.

Update: The Court, in its last orders of the Term, has issued a GVR in two § 101 cases, the Prometheus case, relating to methods for measuring the level of certain drug metabolites in the system for the purpose of adjusting the drug administration level, and the Classen case, a nonprecedential opinion relating to a method of selecting a vaccination schedule by comparing alternatives and selecting the alternative with the lower likelihood of autoimmune disorders. The Federal Circuit will therefore have two opportunities to address § 101 in light of the Court's guidance sooner rather than later.

The majority opinion, authored by Justice Kennedy and joined by the Chief Justice and Justices Scalia, Thomas, and Alito, stated while § 101 "precludes the broad contention that the term 'process' categorically excludes business methods." This is based in part on the definition of "process" in § 100(b) as well as the reference to business methods in the context of the prior user defense codified after State Street in § 273. Based on these sections, the majority concludes a categorical ban on business methods is inconsistent with the text of the statute, and declines to impose such a ban. The majority did invite the Federal Circuit to explore some narrower categorical language that may be in line with the Supreme Court's prior cases, stating:

It may be that the Court of Appeals thought it needed tomake the machine-or-transformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr. In disapproving anexclusive machine-or-transformation test, we by no means foreclose the Federal Circuit's development of other limiting criteria that further the purposes of the Patent Actand are not inconsistent with its text.

The scope of the invitation is contained in a four-Justice plurality portion of the opinion, with Justice Scalia not joining this portion (internal citation omitted):

Indeed, if the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent. But beyond this or some other limitation consistent with the statutory text, the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter under § 101.

So, while the majority was not willing to categorically ban business method patents, four of the five Justices were at least willing to consider a partial ban on such patents if it were couched as a new test for an "abstract idea." This is consistent with the majority's conclusion that Bilski's patent claims were directed to the concept of hedging, and therefore an abstract idea.

Justice Stevens authored an opinion concurring in the judgment, joined by Justices Ginsburg, Breyer, and Sotomayor. This group was willing to go further and declare business methods outside the scope of § 101. Justice Stevens traced the history of business method patents (or, as his opinion states, the absence of such patents) from colonial days through enactment of § 101 in the 1952 Patent Act. After tracing this history, Justice Stevens takes the position that "when Congress changed the language in § 101 to incorporate the prevailing judicial terminology, it merely codified the prevailing judicial interpretation of that category of subject matter." Justice Stevens then takes issue with the statutory construction argument regarding § 273, stating:

It is apparent, both from the content and history of the Act, that Congress did not in any way ratify State Street (or, as petitioners contend, the broadest possible reading of State Street). The Act merely limited one potential effect of that decision: that businesses might suddenly find themselves liable for innocently using methods they assumed could not be patented. The Act did not purport to amend the limitations in § 101 on eligible subject matter. Indeed, Congress placed the statute in Part III of Title 35, which addresses "Patents and Protection of Patent Rights," rather than in Part II, which contains §101 and addresses "Patentability of Inventions and Grant of Patents."

Justice Stevens further bolsters his point by arguing:

Put another way, we ordinarily assume, quite sensibly, that Congress would not in one statute include two provisions that are at odds with each other. But as this case shows, that sensible reasoning can break down when applied to different statutes. The 1999 Act was passed to limit the impact of the Federal Circuit’s then-recent statements on the 1952 Act. Although repudiating that judicial dictum (as we should) might effectively render the 1999 Act a nullity going forward, such a holding would not mean that it was a nullity when Congress enacted it. Section 273 may have been a technically unnecessary response to confusion about patentable subject matter, but it appeared necessary in 1999 in light of what was being discussed in legal circles at the time.

At the end of the day, Justice Stevens argues business method patents are not necessary for innovation. He states that "[d]espite the fact that we have long assumed buisness methods could not be patented, it has been remarked that 'the chief business of the American people, is business.'" With this historical background, the four Justices joining this opinion would hold business method patents outside the reach of § 101.

Justice Scalia appears to be on the fence. He declined to join two portions of the majority opinion, one portion with a general description of how § 101 is "dynamic" and is "designed to encompass new and unforeseen inventions," and specifically calling out software as patentable subject matter. This section also noted the machine-or-transformation test may be sufficient for "evaluating processes similar to those in the Industrial Age." He also declined to join the section where Justice Kennedy invited the Federal Circuit to pursue a narrower preclusion of some business methods as abstract ideas. However, by the same token, he did not join Justice Stevens in advocating for a categorical ban on business methods. Justice Scalia did join part of a separate opinion by Justice Breyer where he laid out four points of what he perceived as agreement between the Justice Kennedy and Justice Stevens opinions:

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